Assume That a British Pound Put Option Has a Premium

question 18

Multiple Choice

Assume that a British pound put option has a premium of $.03 per unit and an exercise price of $1.60. The present spot rate is $1.61. The expected future spot rate on the expiration date is $1.52. The option will be exercised on this date, if at all. What is the expected per unit net gain (or loss) resulting from purchasing the put option? ​

• A)$.01 loss
• B)$.09 loss
• C)$.09 gain
• D)$.05 gain

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Definitions:

Paid-in Capital

Funds received by a company from selling its stock directly to investors, not including any stock sales on the open market.

Common Stock

A type of security that represents ownership in a corporation, entitling the holder to vote at shareholders' meetings and receive dividends.

No-par Common Stock

Shares issued without a par value, allowing the company more flexibility in setting their price.

Paid-in Capital

The total amount of capital that shareholders have contributed to a company in exchange for shares of stock.